U.S. Bans Chinese Apps TikTok and WeChat, Citing Security Concerns

(WSJ) The Trump administration will begin banning downloads and use of popular Chinese-owned apps TikTok and WeChat late Sunday, in a move U.S. officials said was driven by national-security concerns but which drew objections for impinging on free-speech rights.

The Commerce Department issued regulations Friday to bar U.S. companies from providing downloads or updates for the TikTok and WeChat apps after 11:59 p.m. Sunday. Companies will also be banned from providing data-hosting services for WeChat at that time.

“Each collects vast swaths of data from users, including network activity, location data, and browsing and search histories,” the Commerce Department said. “Each is an active participant in China’s civil-military fusion and is subject to mandatory cooperation with the intelligence services” of the Chinese Communist Party.

The regulations implement executive orders signed by President Trump last month to ban the apps, but with two key concessions. 

Commerce said it would allow U.S. companies to continue providing web-hosting services for TikTok through Nov. 12, granting more time for talks with its Chinese owner, ByteDance Ltd., and Oracle Corp. to create a new U.S.-based owner of the video-sharing app. Such a deal would allow the app, a fixture on millions of American teens’ smartphones, to endure.

Mr. Trump told reporters Friday that he expected to make a decision soon on that partnership.

“They’re going to be showing me everything in a little while on Tiktok,” the president told reporters at the White House before departing for a rally in Minnesota. “We’re going to make a fairly fast decision. I don’t think we have to delay it too much,” he added, calling TikTok “a pretty incredible asset.”

Commerce will also allow U.S. companies to continue using WeChat outside the U.S.—including in China, where the multipurpose app owned by Tencent Holdings Ltd. is used for mobile payments, messaging, marketing and business communications.

American brands including Walt Disney Co. and Walmart Inc. rely on WeChat to reach and collect payments from customers in China. Nine out of 10 companies surveyed by the American Chamber of Commerce in Shanghai said the ban would hurt their Chinese operations, should the ban extend to China.

Some free-speech advocates and scholars sounded alarms over the constitutionality of the administration’s orders.

“I think these actions violate the First Amendment,” said Erwin Chemerinsky, dean of the UC Berkeley law school. “This is about cutting off a medium of speech. That is unprecedented, even in the context of trade restrictions, and unconstitutional.”

On Friday, a federal judge in California declined to grant a request from a WeChat users group for a preliminary injunction blocking implementation of the executive order, but she agreed to review additional arguments before a hearing set for Saturday afternoon.

In a separate lawsuit that TikTok filed last month against Commerce to stop the implementation of the orders, the app’s lawyers also raised First Amendment grounds and suggested that the order unfairly punishes TikTok for providing political content.

“The order specifically justifies targeting TikTok based in part on the content of the videos hosted on TikTok, citing concerns about videos on ‘politically sensitive’ topics and videos about the ‘origins of the 2019 Novel Coronavirus,’ ” TikTok lawyers said in the lawsuit.

Federal lawyers have defended their actions, saying in court filings in the WeChat suit that the executive ban “does not target protected expression,” and that numerous alternative platforms are available.

A person with knowledge of the Chinese government’s thinking said the situation could have been worse, noting that U.S. companies can continue using WeChat in China, and TikTok has been given time to resolve the ban through a U.S. sale or partnership.

More broadly, this person said, the U.S. appears to be moving toward requiring Chinese firms doing business in the U.S. to store their data here—much as China requires U.S. companies to store data there, over American objections. “Washington basically is doing something it has long criticized Beijing for,” the person said.

In its order detailed Friday, Commerce said it would block “any provision of service to distribute or maintain the WeChat or TikTok mobile applications, constituent code, or application updates through an online mobile application store in the U.S.” It will also block any money transfers through the WeChat app for U.S.-based users.

In a call with reporters Friday, a senior Commerce official declined to explain how the new rules would be enforced or whether it would impose monetary penalties for violations.

Commerce officials conceded that WeChat and TikTok users could probably find workarounds to evade the ban. But they said the effect of the rules will be to seriously degrade the functionality of the apps for U.S. consumers.

Users will experience slow speeds to the point of timing out, so while the service might still be technically usable, it won’t be very functional after Sunday night, officials said.

Nicol Turner Lee, director of the Center for Technology Innovation at the Brookings Institution, a centrist Washington think tank, said the Trump administration’s actions were leading to a decoupling of the U.S. and China, but one “without substantive data or policy that would allow us to have reasonable alternatives in the U.S. marketplace or strategy for ensuring U.S. companies do not get closed out of emerging markets.”

“The impulsiveness of this administration to restrict our dealings with Chinese companies also doesn’t factor in the economic consequences,” she said.

Commerce Secretary Wilbur Ross said that he made the decision on the rules after Mr. Trump ordered his department to review the apps for national-security concerns last month. “China has been taking all kinds of data,” Mr. Ross said on the Fox Business Network. “That’s what we’re trying to squelch.”

A spokesperson for China’s Ministry of Commerce said Saturday that in banning WeChat and TikTok the U.S. had abused its powers to “hunt” and suppress the two companies, without having provided any evidence of wrongdoing. It also warned the U.S. to “abandon bullying, immediately stop wrong actions and earnestly maintain fair and transparent international rules and order,” and warned about the prospect of retaliation.

In a statement, Tencent said that it has “always incorporated the highest standards of user privacy and data security” and had submitted a comprehensive proposal to address U.S. security concerns.

TikTok said it has “already committed to unprecedented levels of additional transparency and accountability well beyond what other apps are willing to do, including third-party audits, verification of code security, and U.S. government oversight of U.S. data security.”

While U.S. companies would be allowed to continue using WeChat outside of the country, the Commerce announcement indicated that the agency could prohibit overseas use of WeChat by Americans in the future. It also could move against other online services offered by Tencent such as its gaming platforms, according to the Commerce announcement.

Commerce officials delayed prohibition of transactions that would greatly impair TikTok’s user experience until Nov. 12, matching the 90-day deadline that Mr. Trump set for the divestiture of TikTok’s U.S. operations. In that order, the president said that ByteDance, “might take action that threatens to impair the national security of the United States.”

Asked whether he expects a deal before the election, Mr. Trump said he hoped to reach an agreement quickly. “We’re not going to do anything to jeopardize security. At the same time, it’s an amazing company and very, very popular.”

TikTok officials said the app surpassed two billion global downloads last month and has roughly 50 million daily active users in the U.S. The Trump administration contends that the data TikTok collects from U.S. consumers could be shared with the Chinese government. TikTok has said it would never hand over such data.

In response to a question, a Commerce official rejected the idea that, in light of TikTok’s popularity, politics played a role in postponing the full ban until after the Nov. 3 election.

Beijing-based ByteDance has been locked in negotiations over how to address the U.S. government’s security concerns, and this week seemed to be gaining momentum toward an agreement Mr. Trump could sign. A consortium of U.S. companies, led by Oracle, are discussing a plan to take a majority stake in a new company that would oversee TikTok’s operations and ensure its data security.

People involved with the talks have said throughout the week that an agreement appeared imminent, even while important issues were still being ironed out. But the announcement on Friday indicates more distance between the two sides may exist than previously understood.

A senior Commerce official said Friday that as the TikTok deal moves forward, Mr. Ross is prepared to “change or even potentially remove the restrictions [on TikTok] if the president agrees to a deal.”

WeChat and its Chinese sister app Weixin have about 1.21 billion monthly active users combined. On an earnings call in August, Tencent executives sought to distinguish the two apps and allay investors’ fears. The company generates less than 2% of revenue from the U.S., a Tencent executive said at the time.

Launched by Tencent in 2011, WeChat has become the go-to example of China’s capacity to innovate. In addition to running the world’s most-used social media app, Tencent is the world’s biggest videogame company by revenue. In the U.S., Tencent owns Riot Games Inc., creator of the popular videogame “League of Legends,” and has stakes in “World of Warcraft” maker Activision Blizzard Inc. and Epic Games Inc., developer of the popular game “Fortnite.”

After Mr. Trump’s August executive orders, Tencent hired Edward Royce, former chairman of the House Foreign Affairs Committee, and four other lobbyists from Brownstein Hyatt Farber Schreck LLP, according to a disclosure filing.

With a market value of over $645 billion, Hong Kong-listed Tencent is one of the biggest companies in China and works closely with the government. Chairman, and CEO Pony Ma has been a member of the rubber-stamp National People’s Congress since 2013.

Source: Wall Street Journal by Katy Stech Ferek and John D. McKinnon

U.S. Bans Chinese Apps TikTok and WeChat, Citing Security Concerns U.S. Bans Chinese Apps TikTok and WeChat, Citing Security Concerns Reviewed by TechCO on 9/19/2020 Rating: 5

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